Case Solution for County Line Markets: Real Options and Store Expansions

Complete Case details are given below :

Case Name :      County Line Markets: Real Options and Store Expansions
Authors :           Tom J. Cook, Lou D’Antonio, Ron Rizzuto
Source :             North American Case Research Association (NACRA)
Case ID :            NA0351
Discipline :        Finance
Case Length :    21 pages
Solution Sample availability : YES
Plagiarism : NO (100% Original work)
Description for case is given below :
County Line Markets (CLM) needed to consider expanding one of its existing sixty-seven Indiana based stores to form a superstore. The key capital investment trade-off decision facing CLM was whether to replace its existing store now with a new, larger superstore, or should they wait in the hope that additional information they might receive in the future would enhance the overall net present value (NPV) of the project. Ron Winston, CFO, was considering whether a real options approach should be used to help determine when and if the store should be converted to a superstore. This case focuses on CLM’s evaluation of its downtown metro area location. Although the specific circumstances of each location were different, the analytical and judgmental issues facing CLM’s management for the upgrade to a superstore were typical of the issues present at each location. The CLM store under evaluation is located in an area where the demographics, population, and competitive landscape have changed dramatically since the store was last remodeled. The chief financial officer (CFO) Ron Winston thinks that it is premature to invest substantial sums of money in some existing locations because they are still in a state of flux, and he feels it is better to wait until the market stabilizes before committing large amounts of funds to these markets. Jerry Williams, vice president of operations, thinks that CLM needs to invest in advance of market changes. Williams also believes that Winston is not considering competitive developments in his analysis; that is, the impact on the downtown metro area store if the competition moves to a superstore first.
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